Einstein's General Theory of Investment

Einstein was a genius known for his simple elegant expressions of complex
natural laws. Indeed, what is simpler than E=MC2? While it may be urban legend
that Professor Einstein was reputed to have said that compound interest was
the "eighth wonder of the world and the most powerful force in the universe",
the point is well taken.

"Compound interest is the eighth wonder of the world.
He who understands it, earns it ... He who doesn't ... pays it"

~ Albert Einstein

Einstein's observations were perfectly accurate back then as he noticed that
the universe was expanding. Because growth is a natural phenomenon, the human
race, in general, and any man, in particular, can take advantage of natural
law by putting off consumption today and investing in the future. This is the
force behind compound interest. A seed of corn not eaten but planted will multiply
into a thousand seeds at the future harvest; an acorn nurtured and planted
can produce a mighty oak; an olive grove cultivated now may take 40 years to
mature but it will take care of future generations. Thus, the moral of the
story is always the same: Save today, invest for the future, and reap fabulous
rewards. If you can invest at 7.2% for ten years, your wealth will double!

The mathematics of finance should be incredibly simple and elegant to watch
in motion, but they're not, thanks to the efforts of the Federal Reserve.

Einstein came to America during a time of great turmoil in Germany and Europe.
Germany was turning into a National Socialist Party with a dictator and command
economy. In a command economy, interest can be fixed by the government at zero
or even negative, and savings accounts can be stolen and used to fund the wishes
of the state. The river of investment that runs forward creating capital can
be forced by state-created inflation to run in reverse, destroying capital.
In other words, seed corn rots if it's not eaten, and investment dries up because
saving is for suckers.

Ah, welcome to 2012 America. The Fed has decreed interest rates at zero for
four years, and promised to keep them there for at least another two. The Fed
is still printing money out of thin air as well as buying long term treasuries.
By locking the yield of the 10-year Treasury at 1.6%, it's well below the rate
at which staples like food, energy, utilities, transportation, education, and
health care, are rising in cost.

Today, and as far as the eye can see, real inflation is well above interest
rates. Instead of savers being rewarded they are being taxed, mugged, and systematically
destroyed by continued low interest rates with no return on capital as the
Fed tries to get people to spend and not save to stimulate the economy. Where
capitalism in our country as Einstein knew it used to flourish, we're now a
land dedicated to eating its seed corn, and encouraging people not to waste
their time planting acorns for the future.

Is it any surprise that pension funds that assume they will earn an 8% return
are all headed to insolvency? It is now a simple mathematical fact that with
spending encouraged and savings taxed and given a negative return, only the
superrich can set aside sufficient resources to take care of themselves as
they age. The average American is destined to be a ward of the state.

Einstein understood physics and natural law. He knew that if interest rates
are set at zero and well below the rate of inflation, capitalism would die.
Trying to run an economy without real interest rates is like trying to run
the universe without gravity. It doesn't work.

Whenever I fly or take public transportation and hear the government announcement "if
you see something, say something", it reminds me of Einstein because he came
to America to honor and support our capitalistic system, and would have stood
up to Ben Bernanke today by insisting he stop printing, before the train of
capitalism crashes.

Prior to founding the Specialty Finance Group in 1989,
Mr. Benson acted as a trading desk economist for Chase Manhattan Bank in the
early 1980's and started in the securitization business in 1983 at Bear Stearns,
and helped build the early securitization businesses at Citibank and E.F. Hutton.

Mr. Benson graduated from the University of Wisconsin in
1970 in the Honors Program in Math, and did his doctoral work in Economics
at Harvard University. Mr. Benson is a member of the Harvard Club of New York
and Palm Beach.

The Specialty Finance Group, LLC is a Florida Limited Liability
Company and is registered with the NASD/SIPC as a Broker/Dealer.